Legal Briefs: The pitfalls of agreements

REGULARLY in business, parties invariably enter into a contract without recording all details in writing.

A court ruled that a dentist's payment breach did not go to the root of the contract.

A recent case, "Valilas v Januzaj", set out some of the unfortunate consequences of failure to record a proper contract.

Two dentists entered into an agreement.

Dentist A operated the dental practice and Dentist B as invited to practice in A's practice under an oral agreement whereby B could use the premises and equipment in return for paying A 50 per cent of his receipts each month.

B received most of his earnings under a contract with a local community provider (C) where B received a fixed price per unit of dental activity.

C made payments to B in advance in equal monthly instalments, but if B did not achieve the requisite number of units by the end of the year then B had an obligation to refund any other payment to C.

The relationship between A and B broke down in 2010.

B informed A that he would stop making his monthly payments as he was concerned that as he was not booking up sufficient units to C, he may have to make a refund to C at the end of the year and did not want to be out of pocket.

A subsequently told B that he could no longer work at the practice and excluded him.

The key issue is to whether B had renounced his agreement by foreshadowing that he would not make his monthly payments, or was in repudiatory breach of the contract by actually stopping the payments.

If this was correct then A would be entitled to bring the contract to an end.

The danger for A was that if he was wrong in this conclusion then B could bring an action for damages against A for the result in loss of his contract with C.

The court held by a narrow majority that B's refusal to make the monthly payment to A did not entitle A to terminate the contract as there was no stipulation in the contract that time was of the essence.

Furthermore, the court held that the failure to make the payments did not go to the "fundamental basis of the contract" and as such did not entitle A to terminate the contract, and that B had not indicated that he did not want to pay but that he had to at least be cautious for some time to ensure he did not end up owing money to C.

This scenario often appears in practice. We recommend that readers ensure any agreements, particularly between business partners or associates, which often occur in health facilities, are recorded carefully in receipt of good legal advice.

Disclaimer:Readers should seek independent legal advice as this article is for information purposes only. Geoff Bowyer is a director at Beck Legal, Bendigo.